For more information contact: Media: Steve Conway (612) 683-7133 Financial: Brad Allen (612) 683-7395 CRAY RESEARCH REPORTS FIRST QUARTER FISCAL 1995 RESULTS First Quarter Loss As Indicated; Orders Nearly Doubled; Company Looks To Second Half Improvements Following Product Transition and Restructuring EAGAN, Minnesota, April 25, 1995 -- Cray Research, Inc. (NYSE: CYR) reported a net loss of $48,292,000, or $1.90 per share, on revenues of $131,063,000 for the first quarter of fiscal 1995 ended March 31, compared with net earnings of $21,953,000 or $ .84 per share, on revenues of $248,866,000 for the comparable period a year ago. The first-quarter results include restructuring and one-time charges against earnings of $40,722,000 pre-tax or $28,412,000 after tax ($1.12 per share), for actions taken to improve the company's cost structure. The company previously indicated it was expecting losses in the first half of the year, prior to restructuring, offset by positive second-half results. First-quarter order value was $110 million, nearly double the $59 million figure for the comparable period last year. Backlog at the end of the quarter was $282 million, compared with $271 million at the end of first quarter 1994 and $237 million at year-end 1994. Product revenues in the quarter declined significantly from first quarter 1994, primarily due to the transition to a new high-end product line, the CRAY T90 family, slated to begin shipping in volume in the second half of the year, and due to the transition to the new CRAY J90 lower-priced product line, which began shipments in March with record advance orders. Product gross margins declined 9 points prior to restructuring and one-time charges, due to the product transition at the high end and to a product mix shift to lower-priced systems, not yet offset by volume delivery of the new high end systems. The company expects product gross margins to remain under pressure in 1995. The company also bought back 662,728 shares of its stock on the open market in the quarter and ended the quarter with $241 million in cash and long term cash investments. "First-quarter events show that our strategy is working," said Cray Research president and chief operating officer Robert H. Ewald. "We secured Cray's leadership in the important high-end supercomputing sector with the successful February launch of the CRAY T90 series, while ramping up orders for our lower- priced products in growth segments of the market." "As expected, the first quarter was difficult as we went through the product transitions, restructuring and reorganization," he said. "It was also one of our busiest and most productive ever in terms of change, accomplishment and progress across several fronts." "As we forecast, our first-quarter orders nearly doubled compared with last year as we continued to win new customers, in new industries and new geographies. Nearly half of our first-quarter orders were from new customers, and about 75 percent were for the company's lower-priced CRAY J90 and CS6400 systems. We are on track to substantially increase unit volumes this year, and we expect Cray customers to order more than twice the computer power in 1995 than they did in 1994." Ewald said high-end supercomputer business in the quarter included a large order from Commissariat a l'Energie Atomique (The French Atomic Energy Commission) and an order from the Kumho Group, Seoul, Korea. Orders from CRAY J90 compact supercomputer systems came from automotive supplier Hartwick Professionals, Troy, Mich.; Brussels-based weather forecasting center Groupement Espace Belge; the Weizman Institute of Science, Israel; the University of Sao Paolo, Brazil; the University of Groeningen, Netherlands; and additional undisclosed customers. "Orders more than doubled from last year's first quarter for the CS6400 system and included new undisclosed customers in the travel and tourism, home products and health care industries, as well as additional business in banking and finance, where Cray Research has already made strong inroads," he said. "We're winning key commercial reference accounts, and more than half of this business is now coming from the commercial sector, compared with a much lower percentage in the product's 1994 start-up year." "Our overriding goal in 1995 is to improve our financial performance as we transform Cray Research into a more market-focused company and increasingly penetrate growth segments of the high-performance computing market. With our customer base that has more than doubled since 1990, strong balance sheet, leading technology, new products and dedicated employees, I am confident we will achieve our 1995 objectives and pave the way for continued progress," he said. Larry Betterley, Cray's chief financial officer, said, "With the challenges we face in 1995, we are anticipating total revenue declines on the order of 10 percent for the full year, with breakeven results prior to restructuring and one-time charges. We are working diligently to better those results." "As we indicated last quarter, the first half of 1995 in particular will be difficult as we go through several transitions, including delivering higher unit volumes at lower average selling prices and managing two major product transitions," Betterley added. "Cray's restructuring actions are designed to implement a more competitive cost structure, improve asset utilization and increase focus throughout the organization," he said. Restructuring and other one-time charges will be used for employee severance, asset write-offs and other non-cash charges. Annual cost eliminations expected from restructuring and one-time charges total approximately $20 million and cash outlays related to restructuring will total about $18 million. "While the majority of the needed restructuring activity is covered in the first quarter charges, we will continue to evaluate our needs throughout the year, making additional charges likely," Betterley concluded. Cray Research provides the leading supercomputing tools and services to help solve customers' most challenging problems. -Summarized financial data follows- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CRAY RESEARCH, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31 ---------------------------------------------- 1995 1994 ---------------------------------- ---------- As Restructure Before Reported & One-time Charges Charges ---------- ---------- ---------- ---------- (In thousands, except per share data) Revenue: Sales $ 70,116 - $ 70,116 $ 198,253 Leased systems 7,378 - 7,378 5,066 Service fees 53,569 - 53,569 45,547 ---------------------------- ---------- ---------- ---------- ---------- Total revenue 131,063 - 131,063 248,866 ---------------------------- ---------- ---------- ---------- ---------- Cost of revenue: Cost of sales 57,466 14,973 42,493 101,679 Cost of leased systems 3,456 - 3,456 2,619 Cost of services 48,252 9,962 38,290 36,448 ---------------------------- ---------- ---------- ---------- ---------- Total cost of revenue 109,174 24,935 84,239 140,746 ---------------------------- ---------- ---------- ---------- ---------- Gross profit 21,889 (24,935) 46,824 108,120 ---------------------------- ---------- ---------- ---------- ---------- Operating expenses: Development and engineering 42,169 7,214 34,955 36,950 Marketing 43,175 8,568 34,607 32,341 General and administrative 6,479 5 6,474 5,967 ---------------------------- ---------- ---------- ---------- ---------- Total operating expenses 91,823 15,787 76,036 75,258 ---------------------------- ---------- ---------- ---------- ---------- Operating income (loss) (69,934) (40,722) (29,212) 32,862 Other income (expense), net 718 - 718 (1,509) ---------------------------- ---------- ---------- ---------- ---------- Earnings (loss) before taxes (69,216) (40,722) (28,494) 31,353 Income tax benefit (expense) 20,924 12,310 8,614 (9,400) ---------------------------- ---------- ---------- ---------- ---------- Net earnings (loss) $ (48,292) $ (28,412) $ (19,880) $ 21,953 ---------------------------- ========== ========== ========== ========== Earnings (loss) per common and common equivalent share $ (1.90) $ (1.12) $ (0.78) $ 0.84 ---------------------------- ========== ========== ========== ========== Average number of common and common equivalent shares outstanding 25,376 25,376 25,376 26,002 ---------------------------- ========== ========== ========== ========== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CRAY RESEARCH, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) March 31 December 31 1995 1994 ------------ ------------ Assets (In thousands) ------------------------------------------- Current assets: Cash and equivalents $ 65,821 $ 55,543 Receivables 136,495 229,808 Inventories 250,832 207,496 Other current assets 46,922 41,191 ------------------------------------------- ---------- ---------- Total current assets 500,070 534,038 Long-term receivables 18,784 20,959 Leased systems and spares, net 97,512 110,207 Property, plant and equipment, net 236,807 265,116 Investments and other assets 226,738 251,559 ------------------------------------------- ---------- ---------- $1,079,911 $1,181,879 ========== ========== Liabilities and Stockholders' Equity ------------------------------------------- Current liabilities: Current installments of long-term debt $ 12,796 $ 7,344 Accounts payable 18,727 37,999 Accrued expenses 83,857 110,373 Income taxes payable 0 7,009 Deferred income and customer advances 75,778 75,214 ------------------------------------------- ---------- ---------- Total current liabilities 191,158 237,939 ------------------------------------------- ---------- ---------- Long-term debt, excluding current installments 97,000 97,000 Other long-term obligations 15,817 18,030 Stockholders' equity: Common stock 31,511 31,511 Additional paid-in capital 86,061 91,973 Retained earnings 874,268 922,560 Foreign currency translation adjustments 5,542 2,774 Treasury stock, at cost (221,446) (219,908) ------------------------------------------- ---------- ---------- Total stockholders' equity 775,936 828,910 ------------------------------------------- ---------- ---------- $1,079,911 $1,181,879 =========== =========== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CRAY RESEARCH, INC. SELECTED INSTALLATION DATA (UNITS) Three Months Ended March 31 ------------------ 1995 1994 PRODUCT TYPE ------------------ High-end systems: Parallel Vector Processing 4 16 Massively Parallel Processing 2 3 ------------------ 6 19 ------------------ Low-end systems: Parallel Vector Processing 9 26 Symmetric Multiprocessing 7 8 ------------------ 16 34 ------------------ 22 53 ================== GEOGRAPHIC REGION: United States, Canada and Latin America 10 18 Europe 7 11 Japan 5 24 Asia Pacific 0 0 ------------------ 22 53 ================== MARKET SECTOR: Government 6 19 Commercial 11 11 University 5 23 ------------------ 22 53 ================== ------------------------------------------------------------------------------ SELECTED ORDER DATA ------------------- Three Months Ended March 31 % Change CONTRACT VALUE OF ORDERS (in thousands): ------------------- -------- 1995 1994 PRODUCT TYPE: -------- -------- -------- High-end systems: $ 56,000 $ 32,000 75% Low-end systems: Parallel Vector Processing 16,000 11,000 45% Symmetric Multiprocessing 9,000 6,000 50% Upgrades/Peripherals/Other 29,000 10,000 190% -------- -------- -------- $110,000 $ 59,000 86% ======== ======== ======== ------------------------------------------------------------------------------ Backlog ( in thousands) $282,000 $271,000 ------------------------------------------------------------------------------ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ CRAY RESEARCH, INC. SUPPLEMENTAL INFORMATION Three Months Ended March 31 ----------------- 1995 ----------------- SELECTED CASH FLOW ITEMS: Interest received $ 3,418,000 Interest paid 3,502,000 Depreciation and amortization 36,487,000 Expenditure for property, plant and equipment 12,918,000 Repurchase of common stock 11,282,000 Number of shares repurchased (shares) 662,728 Effect of exchange rate changes on cash 1,918,000 Total cash & long-term cash investments 240,821,000 ------------------------------------------------------------------------------ MISCELLANEOUS DATA Before Restructure ------------------ & One-time Charges As Reported ------------------ ------------------ Overall gross profit margin 36% 17% Sales gross profit margin 39% 18% Lease gross profit margin 53% 53% Service gross profit margin 29% 10% ------------------------------------------------------------------------------ New-to-Cray Customers Placing Orders High-end systems 25% Low-end systems Parallel Vector Processing 50% Symmetric Multiprocessing 42% ------------------------------------------------------------------------------ Revenue U.S. (in thousands) $ 49,436 38% Revenue International (in thousands) 81,627 62% ------------------------------------------------------------------------------ Total number of employees 4715 ------------------------------------------------------------------------------ ###